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Startupfest 2014: Startups and the City

Each year, we pick a theme for Startupfest. We’ve looked at startups that change the world, and the stories behind them. This year, we turn our attention to cities. The love affair between hot startups and big cities is burning hotter than ever, for a variety of reasons.

First, there’s density. A city has a population of users, an abundance of data to analyze. It’s easier to learn, to test, to iterate when you have a readily accessible population. What’s the point of getting out of the building if there’s nobody there when you do?

Cities also allow specialization. Think of the diversity of restaurants in a city, compared to the bland, generic selection of a small town. In a big city, even a product aimed at a niche market has tens of thousands of potential customers, letting startups jockey for position and experiment with differentiation. Cities are full of beachheads.

Yet even with the diversity, cities have a common set of needs. New Yorkers all need food recommendations, transit tools, and so on. Marketers know that they need markets which are homogeneous within, and heterogeneous between. Cities are a good place to start.

The growth of cities gives startups new challenges

Cities are a growth business, too. Humanity is moving into cities. A hundred years ago, only 2 out of every 10 people lived in a city; by 2050, 7 out of 10 will. China is moving 250 million people—nearly the population of the United States—into cities.

The urbanization of the human race presents new problems, and of course new opportunities, for business. Startups may save cities by helping them deal with the pressures of sustainability, logistics, climate change, education, and transport. Apps can connect citizens to leaders, helping us to share, govern, and learn. They streamline regulations and circumvent bureaucracy. They help us meet our neighbors and plan our lives. And investors are taking notice.

If you want something done, ask a mayor

There’s an old saying that if you want something done, ask a mayor. Unlike federal, provincial, and state officials, mayors can roll up their sleeves and tackle the problems around them. The immediacy and proximity of a city population fits well within the Lean Startup mindset, continuously learning and iterating.

Mayors are pragmatic, focused on fixing the most pressing, least glamorous problems. Teddy Kollek, mayor of Jerusalem, famously told his officiants, “gentlemen, spare me your sermons and I will fix your sewers.” Benjamin Barber points out that in the US, Congress has an 18% approval rate—but mayors enjoy approval ratings of over 70%.

Reams of open data

Cities generate petabytes of data exhaust, letting us analyze urban problems like pollution, traffic, weather and crime, which in turn can be harnessed to improve the way we architect the world around us. Balancing growth and sustainability, while anticipating shifts in population, is hard. Data can help.

The open data movement, which makes everything from energy consumption to government financials to bus routes to snow plow locations available through free, open APIs. Because of this, the rise of dense, connected populations creates new places for technology to take hold and thrive. In the UK, brings open data together in a searchable website of over 9,000 data sets; in the US, has nearly 90,000 data sets and over 400 government APIs. As the UK government puts it, “Governments create a platform; founders create businesses atop it.”

Where sharing happens

Cities enable sharing. Most startups are technology companies, and technology has the unique ability to let us transact without friction. Humans don’t use their resources efficiently—everyone has a drill that sits idle most of the time; everyone has a car that’s parked more than it’s driven. Technology streamlines this, making better use of what we have collectively.

Look at Car2go, Zipcar, Communauto, Uber, and Lyft: all rely on a dense population with demand and surplus capacity, and make their money from a better allocation of infrastructure.

In a post entitled Bodega 2.0, Code for America founder Jen Pahlka explains how a loose-knit partnership between small retailers can beat a big-box giant, reversing the urban rot of national chains: “What if some fantastic, committed entrepreneurs, who cared about building a sustainable business and about making neighbourhoods healthier and stronger, set about to learn what works in small grocery stores, and then packaged that? What if they made it easier for someone who wanted to run a store like this to have most of the benefits of the larger stores with whom they’d compete, but still a lot of autonomy and connection to the local community?”

She points out that modern technology, open tools, and ubiquitous computing make this possible:“I could see someone offering a package that included guidelines for choosing a space, inventory lists, great simple, beautiful, easy-to-use IT systems (including point of sale, using Square, etc) and graphics and branding.”

Big companies, too

It’s not just startups that are taking note. In a recent study on the future of urbanization, logistics giant DHL speculates that “in 2050, megacities have become the epicenter of social, economic and political development … While progress and prosperity are fast-paced in these new centers of global culture, rural regions have been left behind—and, in many respects, the nation-state has become more of a second-tier actor.”

Similarly, IBM’s Smart Cities initiative says that the “smarter cities of the future will drive sustainable economic growth. Their leaders have the tools to analyze data for better decisions, anticipate problems to resolve them proactively and coordinate resources to operate effectively.”

Startups and cities are inextricably linked

Cities offer the double-digit growth and market density startups need to reach escape velocity. They generate abundant data, and offer opportunities for experimentation and specialization. At the same time, they have hard problems to solve and real needs to satisfy, letting founders make meaningful changes to how people live and work.

This year, we’re bringing dozens of thinkers and builders to Montreal to explore what cities mean for early-stage companies and economic health. We hope you’ll join us. Because ultimately, it isn’t just that startups need cities in order to grow. It’s that cities need startups in order to flourish.